The Immigrant Investor Program, also known as “EB-5,” was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by immigrant investors. It has been a successful way for the United States to attract foreign investment and for immigrants to obtain visas, but it’s at risk because of confusing rules and fraud.
In order to take part in the EB-5 program, foreign investors are required to create a new commercial enterprise or invest in a troubled business resulting in the creation of 10 new jobs for qualified workers within two years of the investor’s admission to the U.S.
With 10,000 EB-5 immigrant visas available annually the program continues to grow toward the cap. In 1992 and regularly reauthorized since then, 3,000 EB-5 visas are also set aside for investors in Regional Centers designated by the U.S. Citizenship & Immigration Services (USCIS) based on proposals for promoting economic growth.
There are two distinct EB-5 pathways for an immigrant investor to gain lawful permanent residence for themselves and their immediate family—the Basic Program and the Regional Center Pilot Program. Both programs require that the immigrant make a capital investment of $1 million. If the investment is in a Targeted Employment Area (TEA), however, the required investment is only $500,00. TEA is defined by law as “a rural area or an area that has experienced high unemployment of at least 150 percent of the national average.
The single largest program that attracts foreign investment to the United States is the EB-5 program. It seemed like the perfect win-win until USCIS started changing the rules and delaying processing of regional center and investor applications creating a massive backlog and complaints from stakeholders with applications dating back to late 2010.
The program has brought in more than $1 billion over the last fiscal year and President Obama has called for the program to be radically expanded over the next few years.
However, the program is fraught with substantial fraud and misrepresentation. Many development projects that are being promoted without completing all the necessary safeguards a typical bank financed project would be required to provide. Most EB-5 regional centers have been consistently successful, yet others have stirred investor capital to questionable development projects that have limited financial return for the investors. Brokers that find the investors receive commission regardless of the success or failure of the target investment.
While many EB-5 regional centers have solid records, a disturbing number have directed investor money to risky projects and companies that pay little to no return, overseen by brokers who get a commission regardless of how the investment plays out.
The EB-5 program has and will continue to help struggling cities and counties throughout the United States reduce the large numbers of unemployed Americans. USCIS must do a better job adjudicating applications in a reasonable period of time. Many applicants have paid more than $500,000 to establish a regional center which requires contracting with economists, immigration attorneys, Securities and Exchange Commission attorneys, appraisers, business plan writers and foreign registered brokers and consultants.
If and when the federal government gets a handle on the fraud issues and can clearly define the process for everyone looking to use this type of investment arrangement, then we could see substantial development boom for California and other states. When I attended the USCIS stakeholder meeting with USCIS Director Alejandro (Ali) Mayorkas last December the director rolled out his plans to hire more business-savvy administrators and make the entire process more transparent and predicable so that applicants would feel confident that they’re not lost in the bureaucratic nightmare and delays often found in Washington D.C.
Many ask a simple question: Why not just borrow money from banks? Simple response, have you actually read the DODD-Frank legislation and the major financial regulatory changes? Banks increasingly walk a fine line between complying with the latest regulations while minimizing their costs in a constrained economic environment. Therefore, the need for a creative blend of financing actually helps everyone move forward, especially high-net foreign citizens’ ability to obtain an American green card.
The author is senior vice president for business Development at Diede Construction.